Amid heightened volatility and uncertainty, investors are looking for both income and growth in their portfolio. This can easily be achieved by honing in on stocks that not only offer dividends but also consistently increase their payout.
Dividend Growth: A Winning Strategy
Stocks that have a strong history of dividend growth as opposed to those that have high yields form a healthy portfolio with more scope for capital appreciation. This is because these stocks act as a hedge against economic or political uncertainty as well as stock market volatility. Simultaneously, these offer outsized payouts or sizable yields on a regular basis irrespective of the market direction.
Additionally, these stocks have superior fundamentals that make dividend growth a quality and promising investment for the long term. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics. Further, a history of strong dividend growth indicates that dividend increase is likely in the future.
Although these stocks do not necessarily have the highest yields, they have outperformed for a longer period than the broader stock market or any other dividend-paying stock.
As a result, picking dividend growth stocks appears as a winning strategy when some other parameters are also included.
5-Year Historical Dividend Growth greater than zero: This selects stocks with a solid dividend growth history.
5-Year Historical Sales Growth greater than zero: This represents stocks with a strong record of growing revenues.
5-Year Historical EPS Growth greater than zero: This represents stocks with a solid earnings growth history.
Next 3–5 Year EPS Growth Rate greater than zero: This represents the rate at which a company’s earnings are expected to grow. Improving earnings should help companies sustain dividend payments.
Price/Cash Flow less than M-Industry: A ratio less than M-industry indicates that the stock is undervalued in that industry and that an investor needs to pay less for better cash flow generated by the company.
52-Week Price Change greater than S&P 500 (Market Weight): This ensures that the stock appreciated more than the S&P 500 over the past year.
Top Zacks Rank: Stocks having a Zacks Rank #1 (Strong Buy) and 2 (Buy) generally outperform their peers in all types of market environment.
Growth Score of B or better: Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
P/E Ratio Less than X-Industry: A ratio less than X-industry indicates that the stock is cheap and undervalued in that industry.
Here are five of the 10 stocks that fit the bill:
Lowa-based Caseys General Stores Inc. (CASY - Free Report) operates convenience stores under the Casey's and Casey's General Store names. The company has a P/E ratio of 26.51 compared with the industry average of 47.26. Its earnings are expected to grow 31.8% this fiscal year (ending April 2019). It has a Zacks Rank #1 and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
New Jersey-based Becton, Dickinson and Company (BDX - Free Report) is engaged in the development, manufacturing, and selling of medical supplies, devices, laboratory equipment, and diagnostic products worldwide. Its earnings are expected to grow 10% this fiscal year (ending September 2019) while its P/E ratio stands at 19.10 compared with the industry average of 21.34. The stock has a Zacks Rank #2 and Growth Score of B.
Arkansas-based ArcBest Corporation (ARCB - Free Report) provides freight transportation services and integrated logistics solutions worldwide. The company has a P/E ratio of 9.63 compared with the industry average of 12.31 and an expected earnings growth rate of 2.9% for this year.
ArcBest has a Zacks Rank #2 and Growth Score of A.
California-based Tetra Tech Inc. (TTEK - Free Report) is a leading provider of consulting, engineering, program management, construction management, and technical services. It has a P/E ratio of 18.22 compared with the industry average of 20.98 and an expected earnings growth rate of 9.1% for fiscal year (ending September 2019). The stock has a Zacks Rank #2 and a Growth Score of A.
Texas-based Nexstar Media Group Inc. (NXST - Free Report) operates as a television broadcasting and digital media company in the United States. It focuses on the acquisition, development and operation of television stations and interactive community websites in medium-sized markets. The company has a P/E ratio of 12.20 compared with the industry average of 13.90 and has delivered average earnings surprise of 5.27% in the past four quarters. The stock carries a Zacks Rank #2 and has a Growth Score of B.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.